It’s only natural that many investors, especially those new to the game, prefer to buy shares in “sexy” stocks with a good story, even if those companies lose money. But as Warren Buffett mused, “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.” When they buy such story stocks, investors are all too often the fool.
So if you’re anything like me, you might be more interested in profitable, growing businesses, like Harel Insurance Investments & Financial Services (TLV:HARL). Now I’m not saying that the stock is necessarily undervalued today; but I can’t shake the appreciation for the profitability of the company itself. Conversely, a loss-making company has yet to prove itself with a profit, and eventually the sweet milk of external capital can spoil.
Harel Insurance Investments & Financial Services’ earnings per share are growing.
If a company can grow earnings per share (EPS) long enough, the share price will eventually follow. That makes EPS growth an attractive quality for any company. It’s impressive that Harel Insurance Investments & Financial Services has grown its earnings per share by 32% per year over the past three years. As a general rule we would say that if a company can keep up Which kind of growth, the shareholders will smile.
I like to look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get a different view of the quality of the company’s growth. I note that the earnings of Harel Insurance Investments & Financial Services of operations was lower than sales in the last 12 months, so that could skew my analysis of margins. The good news is that Harel Insurance Investments & Financial Services revenues are growing and EBIT margins improved 5.9 percentage points to 5.9% over the past year. Checking those two boxes is a good sign of growth, in my book.
The chart below shows how the company’s bottom and top lines have evolved over time. Click on the chart to see the actual numbers.
While profitability is the upside, cautious investors are always also check the balance.
Are Harel Insurance Investments & Financial Services Insiders Aligning All Shareholders?
I always like to check the pay of CEOs because I think reasonable pay levels, around or below the median, can be a sign that the interests of shareholders are well considered. I found that the median total compensation for the CEOs of companies like Harel Insurance Investments & Financial Services with market caps between 3.2 billion and 10 billion is approximately ₪4.3 million.
Harel Insurance Investments & Financial Services offered its CEO up to 3.5 million in total compensation in the year. That is below the average for companies of a similar size and seems reasonable to me. CEO pay levels are not the primary metric for investors, but modest pay supports better alignment between the CEO and common shareholders. I would also argue that reasonable pay levels reflect good decision making in general.
Does Harel Insurance Investments & Financial Services deserve a spot on your watchlist?
Given my belief that stock price follows earnings per share, it’s easy to imagine how I feel about Harel Insurance Investments & Financial Services’ strong EPS growth. With revenues growing rapidly, it is likely to have its best days ahead, and the CEO’s modest pay suggests the company is cautious about cash. So I’d say this is the kind of stock worth checking out, even if it’s not worth much these days. Before taking the next step, be aware of the 2 Harel Insurance Investments & Financial Services warning signs (1 is a bit unpleasant!) that we discovered.
You can invest in any company you want. But if you’d rather focus on stocks that have shown insider buying, here’s how: a list of companies with insider purchases in the past three months.
Please note that the insider dealings discussed in this article relate to reportable transactions in the relevant jurisdiction.
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